On Page Two of his piece, Jim makes two key points:
1. Because it has a strong balance sheet and is not desperate like Netflix, Microsoft has better bargaining power as it negotiates streaming content deals with big media companies such as Time Warner .
2. Reed Hastings, contrary to my portrayal of him, is a "stand-up" guy who displayed "very good leadership" when he apologized for 2011's streaming/DVD split and price increase.
On point one, I call Cramer objectively wrong.
On point two, it's a subjective thing. A matter of individual interpretation of Hastings' style. From what I know about Hastings from people who know him, he is a tremendous individual. However, based on the way he conducts business as CEO, I'm opposite Cramer here.
Let's approach Hastings from a broader perspective that matters within the context of point one. For me, this -- along with how MSFT positions itself in the living room -- strikes the heart of the debate.
If Cramer likes Reed Hastings, he must absolutely love Time Warner CEO Jeff Bewkes. There is not a better CEO in the business. And there's not a finer management team than the one Bewkes has assembled at HBO.
The other day Time Warner announced a streaming service: Warner Archive Instant. Initially, it will not matter much, but that's irrelevant. The bigger picture, the dynamics of digital content licensing matters.
The big media companies -- Time Warner, News Corp , Comcast , Disney , CBS -- hold the cards. They dictate the terms of engagement. What they will license to a third-party, for how much and all the other restrictions around its use and consumption.
Do you think it really matters who sits at the other end of the table? Do you think Amazon.com gets preferential treatment from the big content owners just because it's back isn't against the wall? Apple hasn't gotten very far in its quest to secure content from the old guard media.
It doesn't matter who you are, you're not getting a deal.
The notion that the cost of content is merely a rounding error for Microsoft doesn't justify the Netflix proposition. Great. It can afford to buy content and absorb losses and come out much healthier at day's end than Netflix. This justifies taking on billions in debt just for the opportunity to assume content deals you could get on your own?
And, don't forget, the more subscribers a service has, the more content costs, particularly premium content, if the content owner is even willing to license it in the first place. We can't ignore the Netflix experience with Sony /Starz I outlined on Monday. It's instructive, but often overlooked.
Content owners will not sell premium content to third parties if they think these outlets dilute the premium nature of that content. Sony didn't like giving away its movies to a Netflix with a growing subscriber base, but a static monthly subscription cost.
That's why, by and large, big media companies only license a small fraction of their content, in most cases, to Netflix, Amazon and others. If you want premium stuff you not only have to pay for it, you must be willing to offer it a la carte at a premium price, something Netflix appears unwilling to do.
There's really no reason why companies such as Time Warner cannot or will not create their own platforms to deliver premium content on their terms. Consider HBO GO the most successful TV Everywhere testing ground. And now Time Warner tosses this latest venture into the mix.
This is just another Jeff Bewkes' punkslap of Reed Hastings. At any second, Time Warner, News Corp, Comcast, Disney and CBS can change the game by streaming all or most of its content via its own platforms. Such a move puts Netflix out of business. These big media conglomerates allow Netflix to exist. They can squash it on a whim, leaving Netflix with its original programming powerhouse pipe dream as its only shot at survival.
"A" players such as Bewkes can leave Hastings and Netflix out to dry. I'm not sure why Microsoft wants to put itself in that sort of position.
Steve Ballmer absolutely should not remedy his failure to leverage Xbox in the living room by making a pair of mistakes. Buying Netflix and getting into a business that represents the exact opposite of what the future will look like.
Microsoft can win in the living room. It doesn't need Netflix or the Netflix model to do this. I know exactly what it needs to do. If it doesn't do it, somebody else will.
See Microsoft Can Become Cool Again for details.
--Written by Rocco Pendola in Santa Monica, Calif.